––– a weblog focusing on fixed income financial markets, and disconnects within them

Thursday, December 4, 2014

High Frequency Hiccups

This week has been an interesting one in the world of HFT worries...

Citigroup, somewhat surprisingly, announced the closure of its premier alternative trading system, or ATS, called LavaFlow. LavaFlow had been the subject of regulatory scrutiny, leading up to a small settlement with the SEC back in July.

Citigroup maintains at least two other ATSs or ECNs, much smaller in size than LavaFlow. LavaFlow, despite some negative press associated with the July settlement, had gained significant traction recently -- see the table of weekly flow, below -- which makes its closure all the more intriguing.

Citigroup reportedly explained that "Following a recent review of the LavaFlow ECN, we have decided that our capital, resources and efforts would be better redeployed to other areas within Citi’s Equities Division, ..."

Citi had previously spent heavily to get into the game. We dug up a couple of their multi-million dollar purchases from 2007 and before that, including the $680mm purchase of Automated Trading Desk LLC. The newly shut down LavaFlow likely took over the reins from Lava Trading, a division bought from Knight Capital back in July 2004, purportedly to "catapult [Citigroup] to a leading position in the electronic-execution arena."

Barclay's dark pool, the subject of one of our earlier posts, continues to grow, although it remains a fair share away from its lofty heights of early June.

Meanwhile the SEC is purportedly nearing the end of a lengthy investigation into the way BATS Global's Direct Edge Holdings LLC exchanges handled customer orders. Among the concerns are whether all parties were allowed access to the same information about how the order types worked (or would be executed) and the order of execution among various open orders -- and whether they were indeed executed as they were advertised to be executed.